LEM Holding SA (LEHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the LEM Holding S.A. 9 Months Results 2022/'23 Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Frank Rehfeld, CEO. Please go ahead, sir.

Thank you very much, Alice. Good morning, ladies and gentlemen, and thank you for joining us on this webcast. Today, we would like to introduce LEM's 9 Months Results of our financial year '22-'23. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Andrea Borla, our CFO. For those who are not yet familiar with LEM, LEM is providing sensors for measuring electrical parameters, namely current, voltage and energy. And with those, help our customers in society to transition to a sustainable future. Here, you see the agenda for our today's presentation. After my opening remarks, I will give you more detail on the business performance of LEM. Andrea Borla, our CFO, will then introduce the financial results, and I'm going to outline what we expect in the future, right afterwards. After our Chinese team went through an Omicron wave that spares nobody and was running through the complete organization within 3 weeks, we are very pleased to report our third quarter with more than CHF 100 million sales. That means CHF 103.5 million to be exact. The main drivers for this result remained also in this quarter, our Automotive and Energy Distribution businesses and the main growth regions were again Asia, mainly China and the Americas. We believe that 9.5% top line growth and 12.5% in constant currencies are a respectable result considering the circumstances, in particular, in China with lockdown in November and the sudden end of this zero-COVID policy in December. Our Chinese team fully recovered after COVID wave and everybody is back after Chinese New Year. Now let's start with some general news on the LEM organization. It took us some time to complete the leadership team following our new organization set up that was implemented as of April 1, 2022. However, I'm very happy to announce that with a process that finished now and that we basically have an executive committee that is now complete in our new regional setup with the two regions, Asia and Europe, U.S. You see here a diverse mixture out of different nationalities, Swiss, French, Italian, British and German and decade of working experience in Asia and NAFTA. In addition, we are also very happy that we also have Verena, a woman on the team. Just to recall, we announced her arrival from ams OSRAM already in our Q1 press release in July last year. She is with LEM now since November 1, 2022. I would like to give you now a short glimpse of the experience of the most recent ex co add-ons in the following slides. Let's start with Bastien. Since January 1, 2023, our new SVP, Europe and Americas, who took over from Rainer Bos. Bastien has a finance background, worked for Syngenta in different positions in Singapore and in the headquarter in Basel before he joined LEM in 2018. Starting as my right-hand, so to say, he drove some company-wide projects like the rebranding of LEM before he went into our Automotive product management. And from there, took over the global product management. John McLuskie, a GKN lifetimer before joining LEM, is our Head of the Asia region. He joined us on January 1, 2023, and is located in Shanghai. He has got a background in electrical engineering and has been living and working already in Great Britain, Korea, Japan and obviously, China. His first experience with electrical drives he made in GKN already in 2011, where the picture of the electrification of the automotive industry was still rather blurry. And the newest ex co joiner is Uwe Gerber, similar to John with a rich automotive background who joined us on February 1, 2023, in the function as head of operations. Based on an industrial engineering background, Uwe has made a classical operations career in the automotive industry, where he's been spending quite some time in Mexico and the U.S. Uwe has both automotive and nonautomotive experience but spent most of his career in operations functions in MAHLE Behr, the thermal systems arm of Mahle. And another heads-up I would like to give you on the progress we are making in Malaysia. You probably remember that we have been deciding to set up a plant in Malaysia to give LEM sufficient space for the next growth steps, balance our manufacturing footprint in the world and also tap the talent pool of Penang with respect to semiconductor competencies in particular, for back-end processes. The building progress is visible here and we are slightly ahead of schedule. We managed to hire already today, high caliber candidates that will reinforce our Asian team. We plan to start delivering out of Penang at the beginning of 2024. With that, let's move on to the year-to-date business performance in 2023 in greater detail. Following our business structure, you see here the development of the five businesses in comparison to the same period in '21, '22. The 9.5% growth are contributed mainly by Automotive with a strong performance in China and the U.S. Energy Distribution & High Precision while the DC Meter has been continuing to drive the growth. The growth of our Automation business has been picking up in comparison to the H1 results, and the same is true also for the renewable business. Similar to what I said during the H1 results presentation, the renewable business was strongest, impacted by the semiconductor shortage. Also, our traction business has been improving in comparison to H1. The year-to-date results might look weak, however, you probably remember that the Track was impacted by the stop of our activities in Russia in Q1. Also, in this business, we were strongly impacted by semiconductor shortages, unfortunately. On this page, you see the distribution of the businesses relative to each other. In comparison to H1, nothing has changed in the relative distribution of the businesses. You can nicely see on the table to the right, the contribution of Q3 to the 9-month results, which were stronger in all businesses in comparison to H1 except for Automotive, considered must be that H1 was impacted by the Shanghai lockdown that was hitting our supply base in China severely. I will now go in greater depth for each business in the following slide. I started our biggest business, the Automation business that represents 34% of our global turnover. You see here the turnover plotted for the last 5 years. And our automation business was most severely impacted by the U.S. Chinese tensions as well as the corona crisis. Recovered nicely last year, and we saw an accelerating growth in the first 9 months, '22/'23. We foresee that this business will be most impacted by the recession signals that are in the air, however, have no doubt on the long-term growth potential, in particular, looking at the potential in small drive. The Automotive business includes sensors for battery management systems, motor control and onboard charging solutions and represents 25% of the total turnover. It had record sales in the first 9 months of this financial year. And we saw continuous nice growth of 25% in the first 9 months. And in particular, our battery management business would have grown even faster if we could have had all the components we needed. We believe that despite the correction in the order book that are the result of slowly improving availability of semiconductors, the fundamental growth in the area of electrical vehicles is going to continue. Renewable Energy, now 17% of our business is including the wind and the solar power generation. Despite the fact that the fundamentals of the market are strong, and we did not manage to satisfy all of our customer demand due to the nonavailability of semiconductors, we only had 5.2% growth in constant currencies, translating in 1.6% growth in Swiss franc. Energy Distribution & High Precision today represents 14% of our global business, and it contains our former High Precision business that we reported separately last year in industry. Our smart grid solutions and UPS, as well as the DC Meter for fast charging stations. We see a negative trend in '19, '20 and 2021, similar to the overall top line development of LEM, you realize that the impact of the restarting growth in '21, '22, that was for this business, mainly fueled by the DC Meter. The more than 20% growth between 9 months '21/'22 and year-to-date, '22/'23 indicates the hunger for DC Meters for both fast charging stations in Europe and now also starting in the U.S. The readiness of charging infrastructure will be a key enabler for the rollout of battery electric vehicles on a global scale. In parallel, we see that the demand for our AC grid product, like the Rogowski coil is accelerating since the grid stability in medium voltage grid is seen as an increasingly important topic. In our smaller train business, Track contains all solutions LEM has to offer for trains, metros and trams for both rolling stock as well as trackside. It looks small with 10% of our total turnover, however, is an important part of our portfolio for all those customers who see LEM as a one-stop shop for their current measurement. This rather long cyclical business has been impacted by the stop of our activities in Russia. As already mentioned, Track business had the biggest share of our activities, or was the biggest share of our activities in Russia. Despite growth of 5% in constant currencies, we could have done substantially more if also here, the semiconductor availability would have not hampered the deliveries to our customers. Now projecting this business now from a regional perspective, you see that also in Q3, all regions have been growing. The picture remained unchanged in comparison to what we've been already reporting in H1. The Americas looked particularly impressive with 64% growth in Q3, almost twice of what we've reported in Q2. However, there is a onetime effect, so-called last-time buy that drives the numbers up. Nevertheless, the growth rate in the Americas shows that we are going to go there exactly in the right direction, also based on the newest decision of the American government to invest into renewable and sustainability in the future. EMEA has been adversely affected by both the FX rate of a weak euro against a rather strong CHF and then also by the stop of our activities in Russia, as already mentioned. Nevertheless, also here, the comparison with the H1 shows a nice improvement. Overall, LEM has a balanced exposure in the market. Asia is with 58% leading as the traditional key markets where electronics gets manufactured, independent where it is eventually also getting used. With this, I would like to hand over to Andrea, who will now introduce the financial results in greater detail.

Ladies and gentlemen, good morning also from my side. As the group CFO, I'm very pleased to present attractive financial results for the first 9 months 2022-2023. Let me summarize the financial highlights in three points. First, the sales grew by 9.5% and in local currency by 12.5%, and this despite several COVID challenges in China throughout the year. Second, the profitability continued to grow as well, both in EBIT and net profit. And third point, the order intake has been slowing down over the last 2 quarters. However, the order book for 31st of December remains at high levels. Let's move on to the gross margin. The gross margin in absolute value increased by close to CHF 30 million from CHF 130.1 million to CHF 142.8 million. In respect of the gross margin in percentage, we have gained 20 basis points. What are the main causes for this development? Sales price increases were basically offset by higher material purchase prices and with that, the gross margin increased only slightly. We expect the material cost to further rise during 2023. And we will have to continue passing on those cost increases to our customers in order to defend LEM's profitability. Our two low-cost locations situated in China and Bulgaria cover 80% of all sensors produced by LEM. The construction of our future Malaysian site is progressing well, and we are expecting starting production sometime early 2024. The percentage of our competitive locations is, therefore, expected to further increase in the future. The SG&A increased by CHF 6 million, which are mainly related to increased consulting expenses, investments in information technology, and various recruitment activities. The personnel costs remained basically at the similar level as last year. We have as well reflected within Q3 CHF 2 million expenses in connection with our digitalization, Project Pulse, which, amongst others, includes the introduction of the future ERP Microsoft dynamics. This post project will enable LEM to automate and to strengthen its processes, and it will allow LEM to grow the SG&As under proportionally during the coming years. The R&D expenses increased by over CHF 2 million whereas the R&D percentage remained stable at 8.2%. The increase of R&D expenses is mainly driven by the R&D headcount increase compared to last year's first 9 months. We focus not only on renewing our current product portfolio but as well on developing new product families, addressing new markets and applications in the future. Going forward, R&D expenses are expected to remain in the 8% to 10% corridor. Even though a currency gain of CHF 0.4 million could be realized in Q3, LEM suffered year-to-date the FX loss of CHF 2.1 million, mainly coming from the euro devaluation during the first semester. The gains from hedges could only marginally compensate those losses. Financial expenses were impacted by Meyrin's head office IFRS 16 expenses amounting to CHF 0.6 million and higher interest expenses on loans amounting to CHF 0.3 million. And this due to increasing interest rates both for the Swiss francs, which stands currently around at 1.3% and the Malaysian ringgit, which stands for today at 4.5%. The first 9-month effective tax rate is at 15.4%, about 2% points higher than last year. However, last year's result included a tax credit in France, which this year is booked into R&D expenses. Excluding this effect, the tax rate would be very close of this year's level. We, as well, continue to benefit from the [ H&T ] tax status in China, which results in a reduced tax rate of 15% instead of 25%. And here, you find the full P&L for both year-to-date 2022, '23, which is on the left side of the table and the Q3 on the right side of the table. LEM succeeded for the second time in its history to exceed the CHF 100 million sales threshold during Q3. And this represents a growth of 13% compared with last year's Q3 sales. During Q3, post EBIT at CHF 22.6 million and net profit at CHF 20.1 million exceeded last year's level, reflecting the good momentum experienced during the recent autumn months. In summary, we are pleased to LEM's first 9 months' performance, which is reflected in continuous sales and profitability growth. You may now wonder what the future will bring to LEM, for that, I'm happy to hand back to Frank.

Thank you very much, Andrea. Now looking at today's economic situation, I do not foresee that within the foreseeable future, the situation is getting less complex again. Higher inflation rates are probably going to continue to accompany us despite the steps of the central banks, there seem to be no near end to the Russian-Ukraine war, the development of the situation in the Middle East does not seem to make the world a more peaceful place, and we are witnessing the U.S.-Chinese conflict to further escalate with negative impact, in particular, for the semiconductor industry. We clearly see an improvement of the availability of semiconductors in 2023 against 2022. However, I do not expect that all our needs getting fulfilled neither in 2023, in particular, short-term recommitment of our semiconductor suppliers do not improve our visibility short term. Nevertheless, LEM's business is located in the sweet spot of sustainability and profit from the above-mentioned mega trends. We, therefore, did not change our forecast and reiterate that we expect sales results for the full financial year between CHF 390 million to CHF 400 million and an EBIT margin above 20%. And with this, I would like to thank you very much for your attention. We would now like to open the Q&A. However, before we start, I would like to invite you for the full year results presentation already on May 25, this year. Now what questions do you have to our 9-month results?

[Operator Instructions] Our first question comes from the line [indiscernible]

I would have two questions around the top line. So the first one would be in terms of sales, if you can provide maybe an approximate split, what was the volume effect? What was the price effect? And how do you see pricing going forward? So is that going to normalize? And the second question would be around orders. I would be interested to know in the segments, where did you see maybe the declines that we saw in the third quarter? I read that Automotive was still quite good. So if you could provide some details on that.

Andrea, do you want to take the first part?

I'm happy to take. So on the sales growth, the majority is clearly volume driven and the minority is price increases -- sales price increases. So to simplify, 2/3 is volume, 1/3 is price driven. And this refers to the first 9 months.

And if I talk about -- or if I answer the second part of your question, referring if I understand this correctly to -- in which of these major businesses, these 5 major businesses that we basically explain, we see a decline signals. We clearly see the strongest decline signal in the Automation area and would expect that these decline signals also continue within 2023. And we also see decline signals in Automotive, however, not really for electrical vehicles. So therefore, you would expect that Automotive is going to rather remain strong also forward looking. And the same applies also to renewable. Hope this answers a bit, your question.

The next question comes from the line of Serge Rotzer with Crédit Suisse.

I have two questions. The first question is, can you help me to think in the old reporting structure on the EBIT line, how much has been Automotive being accretive or dilutive to the margin? Can you help me here? Or what is happening in the industrial part as Automation was negative and scale is important? Then I would then ask the second one after.

Serge, so we don't report anymore in the old structure. Having said that, you have also the figures and the data available from the last years. And let's say, the Auto business was slightly diluting because it was -- on the EBIT margin, we had a lower EBIT margin on Auto than, let's say, the total group. But with that, we are not tracking that anymore ourselves, let's say, this is EBIT on Auto, so I cannot answer your question in respect of this year's impact.

Okay. But then order intake, you have said has normalized first and driven by Automotive. So we have still some ongoing pressure on the margin due to the development of the order intake. Is this correct? Or is this wrong?

No, I think what we can say in respect of the order intake -- anyway, we do not publish those figures on order intake by business, but we had some, let's say, qualitive comments. But overall, again, if I refer to where we have standing -- where we have been standing last year, the margin, and I'm talking about the gross margin of Auto industry was pretty similar. It was no huge difference. And you can assume, at least, that there is no radical shifts in such a short time in respect of the gross margin Auto and all other businesses. With that, we will not publish more details about orders on hand and order intake by businesses and in respect of profitability of this order intake.

Okay. Got it. But allow me that, that I still will also ask in the future. Last one, probably. You mentioned that the new order intake was on a normalized level. So if I take CHF 92 million multiply this with 4x, then I get sales of CHF 368 million. You're guiding up to CHF 400 million for this year. So this would imply a decline of 5% to 10% top line for next year. What is wrong in my calculation?

Probably, I'll take this one. And Serge, I think what's probably wrong in your calculation is if you would have done this calculation in the past, we would have been probably never grown. So what happened basically, driven by the semiconductor industry, but also by corona, our order book became longer. So what happened was really that driven by the nonavailability of semiconductors. And we had to ask our customers to give us a longer buying horizon than typically the 3 months that we had before. And this was moving up to 15, sometimes even 18 months because this was also the horizon over which we had to order with our sub suppliers. Now we see that the semiconductor situation is step-by-step moving back. And you remember what we said, still not normalized and being able to fulfill all the demands in 2023, but still slightly improving. And therefore, also now our order book gets shorter again. But this doesn't say anything about the monthly sales or the quarterly sales, right? So we don't see that -- we basically have now a strong decline based on what we see today in the order book for the, let's say, financial year to come.

So despite the high backlog, you are keen to grow by the next fiscal year, this is what you tell me, is it correct?

Sure, we are keen to grow and we see at the moment also no signals that we -- that this will be impossible. But it will remain difficult. And again, there are too many short-term challenges that sometimes make short-term forecast then rather difficult.

[Operator Instructions] The next question comes from the line of Charlie Fehrenbach with AWP.

I wanted to come back to the order intake, which was down more than 30% in the Q3. Can you give us an indication how this development will be in Q4? Is this the trend for general, for weakening demand globally? Or can you give me some explanation there?

And probably, I'll also take this one here. So we see basically a couple of overlaying effects. And for sure, your question is directly also connected to my answer I've been giving to Serge Rotzer from CS. And we see that, on the one hand, the order book is, what you call, normalizing. So basically, we don't expect that we are going to have an order book with the length of 12, 15, 18 months also in the future, but rather expect that this is step-by-step moving towards probably the 3- to 4-month horizon that we had before basically the COVID time. On the other hand, we do see some recessive signals in particular, driven in our segment and Automation, where basically some investments are getting delayed, and we see that basically some order pushouts and also weaker demands already becoming foreseeable. And what does this now tell us all about Q4? I tell you what, not really a lot because Q4 will be mainly determined by the fact that whether we get sufficient number of semiconductors in order to produce. So does it tell us anything about the new financial year? Also, with respect to sales, rather not because we still see also very strong demand or continuously strong demand in the Automotive and also in the Energy Distribution business. So everything around the electrification of mobility. Hope that answered your question.

The next question comes from the line of Daniel Koenig with Mirabaud Securities.

I have 2, 3 small questions. First, the electricity prices have been going up quite a bit. I was wondering how the situation is in Bulgaria and China and what to expect? And then I have a second question on renewables. I'm wondering, of course, it's now getting a little bit better in Q3, but I saw the underlying market in solar is growing by over 20%. So I'm wondering if you're losing market share? And then finally, a small question on Track. You don't have to answer this. When do you think you will get CHF 50 million in Track in the future?

Okay. Now electricity prices. Yes, electricity prices are going up in Europe, not so much really in China. In China, the developments were rather, let's say, there was a slight increase, but it was, in comparison to Europe, rather minor. Now our biggest worry was not so much whether the prices go up or not. Our worry was really whether we would see interruptions of electricity, and therefore, an even higher challenge to our ability to deliver and therefore, we've been also investing in means to make sure that in case of doubt, we could even continue production if the grid would not be stable even in Switzerland. Yes, in Bulgaria, energy prices have been increasing. But I tell you what, in the new overall cost structure, this is nothing that really is now substantially, let's say, a substantial factor in the overall cost increase that we see in particular also due to increasing sub supplier prices. So you know that we are in the privileged situation that we can due to the long-lasting customer relationships also discussed with our customers on price increases and we basically then eventually also pass them on. The second question was with respect to the renewable market. And so, yes, you are right when you say, would you see -- or would we see the risk of losing market share in times when basically the market is growing by 20% and our growth is under proportion. Now 2 topics probably to be mentioned here. First, I think it's not a linear extrapolation that you can calculate here because the current sensor content per gigawatt goes continuously down. So when you grow by 20% in the market overall, in terms of gigawatt, this doesn't mean that LEM also grows even then we would have 100% market share by 20%. On the other hand, yes, it's true that due to the fact that we did not have all the components available that some market share was lost. And, however, we believe we are in a strong situation that as soon as we have the components available and again, looking at the reputation, also the quality performance that we had in the past, and also our strong market position to be able to regain market share again. And the last question, when is traction at CHF 50 million? For sure, not really easy, a question to be answered. Let me say, as soon as possible because we clearly are convinced that the growth potential in this area where, by the way, we also deliver besides current sensor, also energy meters, we believe that this is going to also grow in the future. But probably here, it's a mixture out of the effect of Russia and for sure, also the fact that here and there, some governments might delay some investment decisions looking at the current, let's say, economical challenges that they're seeing. Hope this answers the questions altogether, Daniel.

There are no more questions on the telephone at the moment.

Okay. Are there any questions from the webcast?

Yes.

So any questions that come in through you, Michael?

We have one question from Fadrique Balmaseda from WhiteOak Capital. The question is, can you please provide more color on the orders received in the quarter? And in Automotive, the only business line with book-to-bill over or more than one? And the third question, did China COVID situation impact orders?

Yes. Perhaps I repeat what I said already to Serge. We will not provide more details on the order intake characteristics quarterly by businesses and by margin. I think you need to be -- the only information is the qualitative information in the comments, and that's what you refer to as the Auto business. In respect of COVID, yes, I think it plays a certain role in the weak order intake in the last quarter because you must imagine, in November, again, in Beijing and other parts of China, there was the lockdown, where people have to stay at home for a couple of days, if not weeks. And then in December, we had the opening of the end of the zero-COVID policy. But this had an impact that lots and lots of employees and lots of our customers were actually sick. And of course, then at that time, probably one could assume is that the order -- provide orders and to give orders to them was probably not the top priority, and it has been affected in this quarter.

And the third question that was inside with the question is only Automotive, but one in book-to-bill. And, we also see that our Energy Distribution business is remaining very strong, in particular based on the fact that we are also now entering the U.S. market with our product. So this is something we also continue to see rather with a very, very strong growth forecast.

We have one -- two more -- three more actually questions coming in. The next one is from Mr. France Grobe. The question comes from a private person. And the question is, are you planning to relocate some production capacity out of China?

So the answer to this question is the concept of our footprint, let's say, situation and the fact that we are building Malaysia is that we would like to balance our footprint across the globe for manufacturing. And with this, we clearly see that some lines are going to also move from China to Malaysia, as we will also have some lines moving from Bulgaria to Malaysia and also some lines moving from Switzerland to Malaysia because the idea is to really ramp up in Malaysia as fast as possible and at the same time, basically create space in the other locations for further growth. A bit more mid to long term, the concept is that we want to manufacture in China for China and don't want to use China as much as we had that before we established Malaysia as an export location for the world, right? So that's a bit the concept, and you can probably understand that this leads to overall basically, changes in the footprint. However, to be very, very clear, we see the Chinese market as the biggest and also fastest-growing market for LEM in the future. So LEM is not at all withdrawing from China. We see a normal growth potential, in particular, in Automotive and Renewable Power in China. And we clearly see that -- and our Chinese site is further going to grow even when the export business is gradually moving to Malaysia.

Very good. The next question comes from Andres Gujan from Carnot Capital. The question is, can you describe your market position in the Chinese electric car sector? Do you fully benefit if the production is growing and if the Chinese manufacturers export high volumes?

When you remember what we've been reporting in the past with respect to LEM's acquisition in the Automotive industry, you probably remember that we were showing that out of our total Automotive turnover, we do more than 50% in Asia, or to be very correct, actually, not in Asia, but in China. China is representing 50% of the global market in electrical vehicles and it's also going to remain in this position in the next years to come, minimum, until 2030. China is a demanding market. There is no doubt. And the reason why we've been introducing this organizational change towards basically one P&L in Asia and one P&L in Europe, U.S. was to reflect this challenges accordingly also in the organization to remain very, very speedy in order to be able to answer the request from our customers. So do we fully participate? My answer clearly is, yes. Can we improve? The answer is also, yes. And we'd be already setting the organizational measures in order to do that.

We have another question from Ronald Biltman from AMG firm. The question is, your gross margin in Q3 went down from 48.5% to 47.3% year-on-year. Please explain.

Yes. I think in single quarters, there may be specific effects. And I would not over interpret now this slight reduction compared to previous year. I think a better picture is the year-to-date where, let's say, nonrecurring elements, both positive and negative, are compensating each other. And there, we stand now slightly above where we were standing last year, 47.4% to 47.2%. I think going forward, in the very short term, it is -- our ambition is, of course, to maintain that, if not slightly to increase that. For the coming year '23, '24, I think the big challenge is that we will witness further material price increases. And we, as an organization, we will have to pass on those cost increases to our customers. Will we succeed that, then I think there is a potential for further upside. If we do not manage that then, of course, the gross margin will come under pressure.

We have one other question coming from Olivier Ken from Quiro Capital. Do the U.S. restrictions on chip manufacturing equipment to China could impact your supply chain in China going forward?

Yes. So the answer to that is not really, because the equipment, we are talking here is equipment that is used to manufacture below 10-nanometer and sort of structures and the structures that we are working typically in the sensor industry are substantially above its sort of magnitude, 180 nanometers to 350 nanometers. So we don't see that basically the nonavailability of this equipment in China will be a real issue in, let's say -- directly impacting our performance there. However, what we see is that the increased friction between the countries basically make things complicated, can downturn investment confidence. And I would rather expect from this potential impact on, let's say, short-term growth but not really the fact that, let's say, applied materials would not be able to deliver equipment to China anymore.

Thank you, Frank. We have one follow-up question also from -- again, from Olivier Ken from Quiro Capital. The question is regarding OEMs. Within your Chinese Automotive business, are you more exposed to local or international OEMs? And the second question is, we have been Chinese clients. Are you more exposed to large OEMs or startups?

I think we have a rather challenged exposure with respect to international or local. And what we clearly see is that the international players have difficulties to follow the Chinese rhythm and that they do have difficulties to also follow the Chinese expectations. And meanwhile, also the Chinese software requirement and also the quality of the software development in China have been substantially improved and not all the western OEMs are able to keep this rhythm. We do have a lot of Chinese local OEMs as well as we do have western OEMs. So we don't see really here a disadvantage because also this potential shift toward more locals.

There are no further questions.

Good. Then again, thank you very much for your interest and then for your attention. And I would, again, recall 25th of May is the press conference on the full year results. And we are very much looking forward to talking to you again. Thank you very much. All the best, and have a great day. Bye-bye.

Bye-bye. Thank you.

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